Investment-grade rating masks Paraguay's real fiscal vulnerability: spending discipline.

Moody's Ratings' reaffirmation of Paraguay's investment grade this week comes with a warning that resonates louder than the praise itself: the greatest risk to Paraguay is no longer the level of its debt, but the quality with which it manages its public finances. That distinction — subtle on the surface but decisive for international credit markets — captures the central tension running through the Paraguayan economy at this moment: a genuinely solid expansion cycle coexisting with fiscal fragilities that the government itself would rather not showcase.

The growth numbers are, indeed, remarkable. Economic activity accumulated a 5.6% expansion through May, driven by agriculture and services, and the Banco Central del Paraguay confirmed that GDP grew 5.8% in the first quarter. The soy complex generated USD 2.492 billion through May, consolidating the agricultural sector as the most robust pillar of the economy, while market participants are already projecting growth of close to 5% for the year. The IMF, for its part, revised its forecast to 4.4%, though it acknowledged the strength of local performance and noted that Paraguay will grow at roughly double the regional average, even against a backdrop of slower global expansion. The World Bank places the country among the two fastest-growing economies in the region in 2025.

Yet this success narrative collides with a fiscal reality that critics of President Santiago Peña's government have taken pains to document. The Ministry of Economy highlighted 4.5% growth but acknowledged that tax revenues are barely keeping pace. The Caja Fiscal has accumulated a deficit of 1.31 trillion guaraníes following pension reform, with economists warning of long-term structural problems. Interest payments on public debt rose between 12.9% and 16.8% depending on the measure, while the government is processing external credit lines exceeding USD 1.6 billion and seeking to finalize a new bond issuance. Treasury bonds in the domestic market already stand at USD 1.2 billion, and provincial governments and municipalities received USD 1.6 million less in royalties than in the previous period.

The opposition and independent analysts point out that the 1.5% fiscal deficit was made possible in part thanks to a favorably budgeted exchange rate — an accounting maneuver that raises doubts about the sustainability of what the government has termed a "war economy." President Peña, in his management report, omitted precisely that concept and the debate over the deficit, which led to a public confrontation between the Minister of Economy and the President of the Senate, César Ruiz Díaz. Moody's warning on fiscal management, rather than debt itself, lends technical support to those concerns.

On the tax policy front, the government is advancing long-horizon structural reforms. The creation of the Dirección Nacional de Ingresos Tributarios, which merges the Subsecretaría de Tributación and the Dirección de Aduanas, aims to raise the tax burden from 10% to 12% of GDP and add some USD 400 million in annual revenue, according to its director Óscar Orué. The VAT base already reaches 1,079,828 taxpayers, and overall collection has multiplied 4.6 times in fifteen years. At the same time, the government announced a package of seven new economic bills currently working through the approval process.

On monetary policy, the Banco Central held its benchmark rate at 6%, while consumer credit is growing at a pace that is raising red flags among economists: useful as a sign of financial inclusion and expansion, but potentially problematic if portfolio quality deteriorates. Remittances, which total USD 732 million annually, continue to be channeled largely into the real estate market, helping to energize non-tradable sectors.

On the external front, Taiwan is working actively to increase its imports of Paraguayan soy and beef, with the Taiwanese market paying competitive prices. The arrival of CIRSA, the Spanish gaming and entertainment operator, was presented as a signal of confidence in the country's legal certainty, in line with the economic openness index on which Paraguay stands 27 points above the Latin American average. The devaluation of the Argentine peso, meanwhile, continues to hit cross-border trade in towns such as Alberdi — a reminder of the structural vulnerability of border economies to the volatility of the neighbor.

What to watch in the coming weeks is the negotiation of the 2026 general budget, which BCP head Fernández Valdovinos has already defended with an emphasis on social and security spending, and the passage of the Caja Fiscal reform with the modifications Congress is expected to introduce. The issuance of new bonds and the MEF's opening of the creditor bid reception period will define the state's financing conditions at a moment when the global emerging-market debt market remains attentive to any signal of slippage in fiscal discipline. The question Moody's left hanging, with delicate precision, is also the one international investors are asking themselves: can Paraguay manage success better than it has managed its numbers?

**CIRSA (not listed on international exchanges; Blackstone group subsidiary)** — The Spanish casino and entertainment operator confirmed its entry into the Paraguayan market with an undisclosed investment, citing the country's legal certainty and macroeconomic stability as decisive factors. The opening marks the first significant expansion of a global-scale gaming operator in Paraguay, with potential to be replicated in other Southern Cone markets.

**Petropar (state-owned; no international listing)** — The state oil company ruled out a fuel price cut for July and did not anticipate immediate increases, maintaining a stance of tariff stability against a backdrop of pressure on public spending. The decision has direct implications for domestic inflation and the competitiveness of freight transport — a critical sector for the soy complex's exports.